Monday’s Numbers: July 30, 2012

The Trepp, LLC survey showed commercial mortgage spreads basically unchanged during the past month and unlikely to change barring a systemic collapse in the capital markets, which certainly is possible in our uncertain and volatile economic and political times. In our view, a systemic problem of any magnitude will likely lead to lenders looking for someplace to hide, with liquidity prized and unavailable for borrowers except the most creditworthy ones.

July 30, 2012

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Thoughts on the Headlines

“How Real Estate Funds Are Faring in 2012”—Christenson Advisors

In a recent analysis, Christenson Advisors noted that the global private real estate fund market showed an increase in the number of funds available to investors with investors showing a greater inclination to invest in U.S.-focused funds and larger (and we assume, more diversified) funds.

The survey noted that it is taking longer from fund launch to initial and/or final closing, with smaller funds ($250 to $500 million) facing an “increasingly challenging capital raising environment.” These conclusions are similar to those reached by one of the panels at the recent ULI Real Estate Capital Markets conference in New York City. The report also noted:

Start-up managers are less likely to raise discretionary capital than in prior years.
Successful smaller managers need to focus on specialized, niche strategies and themes to differentiate themselves in the market.
Larger investors appear to be showing an increasing interest in “bespoke” transactions, including separate accounts and club type structures.

Monday’s Numbers

The Trepp, LLC survey showed commercial mortgage spreads basically unchanged during the past month and unlikely to change barring a systemic collapse in the capital markets, which certainly is possible in our uncertain and volatile economic and political times. In our view, a systemic problem of any magnitude will likely lead to lenders looking for someplace to hide, with liquidity prized and unavailable for borrowers except the most creditworthy ones.

For now, lenders seem intent to stick to their floor pricing levels. For borrowers, it remains a time to lock in the lowest rates in memory. Sure; borrowers can wait, but for what? Nothing we can see indicates that rates will get lower, and no one is there to ring a bell at the bottom of the market.

Asking Spreads over U.S. Treasury Bonds in Basis Points (10-year Commercial and Multifamily Mortgage Loans with 50% to 59% Loan-to-Value Ratios)
	12/31/09	12/31/10	12/31/11	7/19/12	Week Earlier	Month Earlier
Office	342	214	210	239	239	239
Retail	326	207	207	232	230	234
Multifamily	318	188	198	223	226	226
Industrial	333	201	205	229	230	230
Average Spread	330	203	205	231	230	232
10-Year Treasury	3.83%	3.29%	1.88%	1.49%	1.49%	1.87%

The Cushman & Wakefield Equity, Debt, and Structured Finance Commercial Mortgage Spread monthly survey of commercial mortgage spreads showed spreads for 10-year, fixed rate mortgages, coming in 5 basis points, reinforcing our comments above regarding floor pricing by lenders.

Property Type	Mid-Point of Fixed Rate Commercial Mortgage Spreads For 5 Year Commercial Real Estate Mortgages
	12/31/10	4/27/12	5/30/12	6/28/12	2/26/12
Multifamily - Non-Agency	+270	+240	+250	+245	+245
Multifamily – Agency	+280	+200	+210	+225	+225
Regional Mall	+280	+275	+300	+300	+295
Grocery Anchored	+280	+270	+295	+295	+290
Strip and Power Centers		+295	+320	+320	+315
Multi-Tenant Industrial	+270	+285	+305	+305	+300
CBD Office	+280	+270	+295	+300	+295
Suburban Office	+300	+290	+315	+315	+315
Full-Service Hotel	+320	+340	+360	+360	+360
Limited-Service Hotel	+400	+350	+370	+370	+370
5-Year Treasury	2.60%	0.83%	0.69%	0.69%	0.57%
Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Property Type	Mid-Point of Fixed Rate Commercial Mortgage Spreads For 10 Year Commercial Real Estate Mortgages
	12/31/10	4/27/12	5/30/12	6/28/12	7/26/12
Multifamily - Non-Agency	+190	+210	+220	+220	+220
Multifamily – Agency	+200	+170	+190	+200	+210
Regional Mall	+175	+220	+245	+245	+235
Grocery Anchor	+190	+200	+230	+235	+230
Strip and Power Centers		+235	+260	+255	+250
Multi-Tenant Industrial	+190	+240	+260	+260	+255
CBD Office	+180	+220	+250	+250	+245
Suburban Office	+190	+245	+270	+265	+265
Full-Service Hotel	+290	+260	+295	+290	+290
Limited-Service Hotel	+330	+290	+320	+310	+310
10-Year Treasury	3.47%	1.95%	1.62%	1.58%	1.42%
Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Property Type	Mid-Point of Floating-Rate Commercial Mortgage Spreads For 3 - 5 Commercial Real Estate Year Mortgages
	12/31/10	4/27/12	5/30/12	6/28/12	7/26/12
Multifamily – Non-Agency	+250-300	+200-250	+200-250	+200-260	+200-260
Multifamily- Agency	+300	+220-265	+220-265	+220-265	+220-265
Regional Mall	+275-300	+200-265	+210-275	+210-275	+210-275
Grocery Anchored	+275-300	+200-275	+205-275	+210-275	+210-275
Strip and Power Centers		+225-300	+225-300	+225-300	+225-300
Multi-Tenant Industrial	+250-350	+225-305	+235-305	+235-305	+230-305
CBD Office	+225-300	+225-300	+225-300	+225-300	+225-300
Suburban Office	+250-350	+250-325	+250-325	+250-325	+250-325
Full-Service Hotel	+300-450	+250-400	+275-400	+275-400	+275-400
Limited-Service Hotel	+450-600	+325-450	+325-450	+325-450	+325-450
1-Month LIBOR	0.26%	0.24%	0.24%	0.24%	0.24%
3-Month LIBOR	0.30%	0.47%	0.47%	0.47%	0.46%
* A dash (-) indicates a range.
Source: Cushman & Wakefield Equity, Debt, and Structured Finance.

Year-to-Date Public Equity Capital Markets

DJIA ⁽¹⁾: +7.02%|
S & P 500^(2):+10.21%
NASDAQ⁽³⁾: +13.55%
Russell 2000 ⁽⁴⁾:+7.43%
Morgan Stanley U.S. REIT ⁽⁵⁾:+14.63%

^{(1) Dow Jones Industrial Average. (2) Standard & Poor’s 500 Stock Index. (3) NASD Composite Index.} ^{(4) Small Capitalization segment of U.S. equity universe. (5) Morgan Stanley REIT Index.}

U.S. Treasury Yields
	12/31/10	12/31/11	7/2//12
3-Month	0.12%	0.01%	0.10%
6-Month	0.18%	0.06%	0.14%
2 Year	0.59%	0.24%	0.24%
5 Year	2.01%	0.83%	0.65%
7 Year			1.04%
10 Year	3.29%	1.88%	1.55%

Key Rates (in Percentages)
	Current	1 Mo. Prior	3 Mo. Prior	6 Mo. Prior	1 Yr. Prior
Fed Funds Rate	0.16	0.10	0.16	0.10	0.11
Federal Reserve Target Rate	0.25	0.25	0.25	0.25	0.25
Prime Rate	3.25	3.25	3.25	3.25	3.25
US Unemployment Rate	8.20	8.20	8.20	8.50	9.10
1-Month Libor	0.25	0.24	0.24	0.27	0.19
3-Month Libor	0.45	0.46	0.47	0.55	0.25

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Stephen Blank

Stephen R. Blank joined ULI in December 1998 as Senior Fellow, Finance. His primary responsibilities include: expanding ULI’s real estate capital markets information and education programs; authoring real estate capital market commentary; participating as a principal researcher and adviser for the Emerging Trends in Real Estate series of publications; organizing and participating in real estate capital markets programs at ULI events worldwide; and participating in industry meetings, seminars, and conferences. Prior to joining ULI, Blank served from December 1993 to November 1998 as Managing Director, Real Estate Investment Banking of Oppenheimer & Co., Inc. His responsibilities included: structuring, underwriting, and executing corporate financings including initial public offerings of common and preferred shares, unsecured debentures, and convertible bonds; property acquisitions, dispositions, and financing; and financial advisory services including mergers and acquisitions, corporate restructurings, and recapitalizations.